Advisors Struggle With Internal Succession

NEW YORK -- While many financial advisors would prefer to have someone within their practice take over upon retirement, not enough are prepared for the internal succession planning process, Kelli Cruz, the founder of Cruz Consulting Group told advisors here during a presentation on Monday at IMCA's Consultants Conference.

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In my experience, effective succession requires more than a better process...it requires a fundamental transformation in the way that broker dealers and RIAs attract, develop, compensate and respond to the new relationship management preferences of Gen Xers and Milennials and not just Baby Boomers. I just addressed this issue in my blog, http://socialmeteors.blogspot.com.

Posted by Neil W | Wednesday, February 12 2014 at 9:58PM ET

From my point of view many RIA's would be best off by creating a transition plan that allows for a timely succession over a period of years. Addressing the formal measurement of the firm as well as professionally assessing potential leaders takes about 5 years. Client feedback must be measured and is essential to the process.The easier the transition is for successors, the more likely the deal will attain long term success.

Lastly, it is my opinion that the founder should never fully sell outright, but instead delegate more and work less over time. Structure the deal so that the business can payout a long-term annuity to the founder and family for the life of the accounts. Successors are properly motivated when the terms are not onerous and large cash buy ins are not required. Like wise the successors have to be of the same values as the clients and owner. There are great assessments that can identify and qualify all that an owner needs to know.